ES Risks and Shareholder Voice

Abstract

We examine whether shareholder votes in environmental and social (ES) proposals are informative about firms’ ES risks. ES proposals are unique in that they nearly always fail. We examine whether mutual funds’ support for these failed proposals contains information regarding the ES risks that firms face. Higher support in failed ES proposals predicts subsequent ES incidents, the effects of
these incidents on shareholder value, and firms’ overall stock returns. Examining the detailed records of fund votes, we find that agency frictions amongst a group of shareholders contribute to proposal failure.

Keywords: shareholder proposals, voting, mutual funds, environmental, social